How To Tell if Your Mortgage Interest Rate is Too High

Posted by Dan Wolf on Tuesday, July 22nd, 2014 at 8:41am.

Are you paying too much for your mortgage? When you are evaluating the prices of a new mortgage, are you comparing costs? How do you know if one is better than the other? 

When you are shopping for a new mortgage, as a consumer, you should be aware and wary of higher-priced loans when you are comparing costs, rates, and fees. It is very important to be conscious of this during the shopping phase because lenders tend to quote extremely competitive rates in order to get the most money and capture the optimum market share (which benefits only them).

One lender's fees and corresponding rates may seem enticing, but beware of a hidden factor: lower fees and rates might actually come with a higher-priced loan due in part to the annual percentage rate (APR). This is because the APR mixes your closing costs with your loan amount, and re-amortizes them both over the life of the loan. APR is a simplification of loan cost, thus the higher the APR, the higher the loan cost.

So how can you tell if you have a higher-priced loan? Here's some tips on how to compare them:

1. The costs from lenders must be in writing. This is the first thing you should be concerned about. Nothing verbal because it can change without notice.

2. Find the prime offered interest rate for the closest week (here is a link to a reliable source). 

3. Now take the APR associated with your quoted mortgage, and compare it to the prime rate. If it is 1.5 percentage points above the prime rate, then you have a higher-priced loan.

If then you are concerned that your mortgage costs is too high, here are a few ways you can try to decrease it:

- Reduce the selling cost.

- Loan reduction.

- Obtain a seller credit.

- Reduce your discount point.

- Reduce interest rate.

- Lengthen loan term.

Need help with your mortgage? Feel free to contact us for additional information on how we can help you. We are committed to raising the industry standard in the real estate community.

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